Bank of Japan holds rates flat despite economic contraction

Sept 16, 2015 (LBO) – The Bank of Japan held interest rates unchanged on Tuesday despite calls for further monetary policy easing from the central bank after a 0.3 percent contraction of the Japanese economy in the second quarter.

The contraction follows a similar 0.3 percent contraction in the third quarter of last year.

“Japan’s economy has continued to recover moderately, although exports and production are affected by the slowdown in emerging economies,” the bank said in a statement. Analysts said the bank had sounded more bullish than what the data showed.

The year-on-year rate of increase in the CPI will be about 0 percent for the time being, due to the effects of the decline in energy prices, the monetary authority said.

“The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen (663 billion dollars).”

These bond purchases are part of a significant stimulus to push up inflation to two percent and end falling prices.

“With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions,” it said.

Market eyes are also on the U.S. Fed which begins its two-day monetary policy deliberation today.

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